Bernanke to head Fed

[gldstwmn]

http://money.cnn.com/2005/10/24/news...ex.htm?cnn=yes

Market likes decision to appoint Bush adviser as Greenspan's successor. But he will face challenges.
October 24, 2005: 1:07 PM EDT


NEW YORK (CNN/Money) - President Bush on Monday nominated Ben Bernanke as the successor to Federal Reserve chairman Alan Greenspan, whose term is set to expire at the end of January.

Bernanke, currently the chairman of the President's Council of Economic Advisers and a former Fed governor, was widely considered to be one of the leading candidates for the Fed chair position.

Wall Street seemed to like the move. Stocks rallied sharply as news leaked about Bernanke's nomination.

Barry Ritholtz, chief market strategist with Maxim Group, a New York-based money management firm, said investors appear to be pleased with the decision since Bernanke is a well-known and respected economist. He added that he sees no reason why Bernanke would not be approved by the Senate.

"This is much more John Roberts than Harriet Miers," Ritholtz said, referring to the relatively smooth confirmation process for Supreme Court Chief Justice Roberts and the controversy surrounding Miers, Bush's choice to replace retiring Justice Sandra Day O'Connor. "He is a known entity that is well-respected on the academic side, in Washington and by the stock market."

Like Greenspan, Bernanke is known for his tough stance on fighting inflation, namely that the central bank should do all it can to nip pricing pressure in the bud with interest rate hikes when there is any sign of inflation picking up. With that in mind, many expect that Bernanke's view on interest rates should be similar to Greenspan's.

The Fed has raised interest rates 11 times since June 2004 in order to keep inflation in check. But economists are now debating whether or not the Fed is close to stopping or if inflation remains a major threat. Ritholtz said that faced with concerns of a slowing economy as well as price increases in energy and food, Bernanke will face some tough challenges ahead of him.

"He will be dealing with a combination of a slowing economy, inflation pressures and a tumultuous stock market," Ritholtz said.